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Hospital Consolidation Isn’t the Key to Lowering Costs and Raising Quality

The headline of a mid-September op-ed in The Wall Street Journal by Kenneth Davis, MD, CEO and president of Mount Sinai Health System in New York City, trumpeted a familiar claim: “Hospital Mergers Can Lower Costs and Improve Medical Care.” But larger size is neither a necessary nor sufficient condition for hospital systems to trim waste and enhance quality. In fact, studies show that greater competition, not consolidation, is more likely to hold down costs and lead to better care.

Austin B. Frakt, PhD

(Image: Doug Levy)

Davis says that larger hospitals and hospital systems reduce costs and improve care in several ways. For instance, he suggests that integrated systems can share top physicians and other resources, including electronic medical records that could be mined for clues to improve quality. They also have the potential to remove regional redundancies, like 2 kidney transplant centers operating in close proximity. Furthermore, eliminating duplication can help enhance hospitals' ability to cross-subsidize unprofitable services that benefit the community, such as pediatric and psychiatric care that relies heavily on low Medicaid payments.

In July, JAMA published an article in which Thomas C. Tsai, MD, MPH, and Ashish K. Jha, MD, pushed back against some of these claims, arguing that hospital consolidation is not necessary to achieve the kinds of benefits Davis suggested. “Consolidation is not integration,” they write. Health information exchanges can achieve clinical data-sharing benefits without consolidation, for example. Perversely, larger hospital systems may be more likely to opt out of such data-sharing arrangements, assuming they capture most of their patients' clinical information. Bigger may not be better.

Tsai and Jha also remind us that there is little evidence that consolidated hospitals improve quality. They argue that quality improvement comes not from size, but from leadership. Smaller institutions can implement inexpensive but highly effective quality improvements, such as surgical checklists, as well if not better than larger organizations can.

Finally, Tsai and Jha write that evidence suggests that competition, not consolidation, is associated with higher quality. A deeper dive into that evidence is found in a 2012 Robert Wood Johnson Foundation evidence synthesis by Martin Gaynor, PhD, and Robert Town, PhD. In a thorough examination of the research literature, these scholars found that, in general, hospital consolidation leads to higher prices (often exceeding 20% in very concentrated markets) and reduces quality.

In short, hospital consolidation is neither sufficient nor necessary to lower costs and raise quality.

Davis concludes his Wall Street Journal op-ed suggesting that this time is different.

[T]he fear that mergers curtail competition, leading to higher prices for medical care, reflects an old way of thinking that doesn't account for the introduction of population-health management. This line of thought ignores the fact that health-care delivery has become more efficient. Health care has changed, too: Medical advances mean that people recover from serious illness and injury faster and live longer, healthier lives. Hospital mergers are the way to promote these positive trends while delivering high-quality, better-coordinated care, improving efficiency and rooting out unnecessary costs.

Davis is right that the Affordable Care Act, through accountable care organizations, as well as private-sector innovations like Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contract, promote a greater focus on population health management. And, in part motivated by the incentives in these and similar new payment models, hospitals are merging in greater numbers. Hospitals mergers or acquisitions have sharply increased in recent years, from 52 in 2009 to 100 in 2012, for example. Many health economists worry that such consolidation will lead to higher prices, if not lower quality, as prior studies suggest.

But will this time be different, as Davis claims? Insurers don't think so. If they believed that hospital mergers and acquisitions would lower costs and prices, they wouldn't oppose them as they do. In addition, there’s new evidence that doesn't support the idea that this time is different. Just this year, the Massachusetts Health Policy Commission found that Partners’ proposed acquisition of South Shore Hospital and Harbor Medical Associates would increase spending without good evidence that it would improve quality.

Of course, it is possible that mergers and acquisitions of other hospitals in other areas could reduce costs and improve quality, but we should demand solid evidence of that, not promises. When a mountain of evidence, both new and old, points the other way, it is entirely reasonable to be skeptical of claims that hospital consolidation will, in general, lead to cost savings and quality improvements.

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